| p>The health care fraud, bank/mortgage fraud and | | | | civil monetary penalties does not determine the |
| securities fraud practitioner should be aware of 18 | | | | amount of assets which may be frozen. Again, only |
| U.S.C. § 1345, a law which permits the federal | | | | those proceeds which are traceable to the criminal |
| government to file a civil action to enjoin the | | | | offense may be frozen under the statute. United |
| commission or imminent commission of a federal | | | | States v. Sriram, 147 F.Supp.2d 914 (N.D.Il. 2001). |
| health care offense, bank-mortgage offense, | | | | The majority of courts have found that injunctive |
| securities offense, and other offenses under Title 18, | | | | relief under the statute does not require the court to |
| Chapter 63. Otherwise known as the federal Fraud | | | | make a traditional balancing analysis under Rule 65 of |
| Injunction Statute, it also authorizes a court to | | | | the Federal Rules of Civil Procedure. Id. No proof of |
| freeze the assets of persons or entities who have | | | | irreparable harm, inadequacy of other remedies, or |
| obtained property as a result of a past or ongoing | | | | balancing of interest is required because the mere |
| federal bank violations, health care violations, | | | | fact that the statute was passed implies that |
| securities violations, or other covered federal | | | | violation will necessarily harm the public and should be |
| offenses. This statutory authority to restrain such | | | | restrained when necessary. Id. The government need |
| conduct and to freeze a defendant's assets is | | | | only prove, by a preponderance of the evidence |
| powerful tool in the federal government's arsenal for | | | | standard, that an offense has occurred. Id. However, |
| combating fraud. Section 1345 has not been widely | | | | other courts have balanced the traditional injunctive |
| used by the federal government in the past in | | | | relief factors when faced with an action under |
| connection with its fraud prosecution of health and | | | | Section 1345. United States v. Hoffman, 560 |
| hospital care, bank-mortgage and securities cases, | | | | F.Supp.2d 772 (D.Minn. 2008). Those factors are (1) |
| however, when an action is filed by the government, | | | | the threat of irreparable harm to the movant in the |
| it can have a tremendous effect on the outcome of | | | | absence of relief, (2) the balance between that harm |
| such cases. Health and hospital care fraud lawyers, | | | | and the harm that the relief would cause to the |
| bank and mortgage fraud attorneys, and securities | | | | other litigants, (3) the likelihood of the movant's |
| fraud law firms must understand that when a | | | | ultimate success on the merits and (4) the public |
| defendant's assets are frozen, the defendant's ability | | | | interest, and the movant bears the burden of proof |
| to maintain a defense can be fundamentally impaired. | | | | concerning each factor. Id.; United States v. Williams, |
| The white collar criminal defense attorney should | | | | 476 F.Supp2d 1368 (M.D.Fl. 2007). No single factor is |
| advise his health and hospital care, bank-mortgage | | | | determinative, and the primary question is whether |
| and securities clients that parallel civil injunctive | | | | the balance of equities so favors the movant that |
| proceedings can be brought by federal prosecutors | | | | justice requires the court to intervene to preserve |
| simultaneously with a criminal indictment involving one | | | | the status quo until the merits are determined. If the |
| of the covered offenses. | | | | threat of irreparable harm to the movant is slight |
| Section 1345 authorizes the U.S. Attorney General to | | | | when compared to likely injury to the other party, |
| commence a civil action in any Federal court to enjoin | | | | the movant carries a particularly heavy burden of |
| a person from: | | | | showing a likelihood of success on the merits. Id. |
| violating or about to violate 18 U.S.C. §§ 287, | | | | In the Hoffman case, the government presented |
| 1001, 1341-1351, and 371 (involving a conspiracy to | | | | evidence of the following facts to the court: |
| defraud the United States or any agency thereof) | | | | Beginning in June 2006, the Hoffman defendants |
| committing or about to commit a banking law | | | | created entities to purchase apartment buildings, |
| violation, or | | | | convert them into condominiums and sell the individual |
| committing or about to commit a Federal health | | | | condominiums for sizable profit. |
| care offense. | | | | To finance the venture, the Hoffman defendants |
| Section 1345 further provides that the U.S. Attorney | | | | and others deceptively obtained mortgages from |
| General may obtain an injunction (without bond) or | | | | financial institutions and mortgage lenders in the |
| restraining order prohibiting a person from alienating, | | | | names of third parties, and the Hoffmans directed |
| withdrawing, transferring, removing, dissipating, or | | | | the third party buyers to cooperating mortgage |
| disposing property obtained as a result of a banking | | | | brokers to apply for mortgages. |
| law violation, securities law violation or a federal | | | | The subject loan applications contained multiple |
| healthcare offense or property which is traceable to | | | | material false statements, including inflation of the |
| such violation. The court must proceed immediately | | | | buyers' income and bank account balances, failure to |
| to a hearing and determination of any such action, | | | | list other properties being purchased at or near the |
| and may enter such a restraining order or prohibition, | | | | time of the current property, failure to disclose other |
| or take such other action, as is warranted to prevent | | | | mortgages or liabilities and false characterization of |
| a continuing and substantial injury to the United | | | | the source of down payment provided at closing. |
| States or to any person or class of persons for | | | | The Hoffman defendants used this method from |
| whose protection the action is brought. Generally, a | | | | January to August 2007 to purchase over 50 |
| proceeding under Section 1345 is governed by the | | | | properties. |
| Federal Rules of Civil Procedure, except when an | | | | Generally, the Hoffmans inherited or placed |
| indictment has been returned against the defendant, | | | | renters in the condominium units, received their rental |
| in which such case discovery is governed by the | | | | payments and then paid the rent to third-party |
| Federal Rules of Criminal Procedure. | | | | buyers to be applied as mortgage payments. The |
| The government successfully invoked Section 1345 in | | | | Hoffmans and others routinely diverted portions of |
| the federal healthcare fraud case of United States v. | | | | such rental payments, often causing the third-party |
| Bisig, et al., Civil Action No. 1:00-cv-335-JDT-WTL | | | | buyers to become delinquent on the mortgage |
| (S.D.In.). The case was initiated as a qui tam by a | | | | payments. |
| Relator, FDSI, which was a private company engaged | | | | The United States believe that the amount |
| in the detection and prosecution of false and | | | | traceable to defendants' fraudulent activities is |
| improper billing practices involving Medicaid. FDSI was | | | | approximately $5.5 million. |
| hired by the State of Indiana and given access to | | | | While the court recognized that the appointment of a |
| Indiana's Medicaid billing database. After investigating | | | | receiver was an extraordinary remedy, the court |
| co-defendant Home Pharm, FDSI filed a qui tam | | | | determined that it was appropriate at the time. The |
| action in February, 2000, pursuant to the civil False | | | | Hoffman court found that there was a complex |
| Claims Act, 31 U.S.C. §§ 3729, et seq. The | | | | financial structure which involved straw buyers and a |
| government soon joined FDSI's investigation of Home | | | | possible legitimate business coexisting with fraudulent |
| Pharm and Ms. Bisig, and, in January, 2001, the United | | | | schemes and that a neutral party was necessary to |
| States filed an action under 18 U.S.C. § 1345 to | | | | administer the properties due to the potential for |
| enjoin the ongoing criminal fraud and to freeze the | | | | rent skimming and foreclosures. |
| assets of Home Pharm and Peggy and Philip Bisig. In | | | | Like other injunctions, the defendant subject to an |
| 2002, an indictment was returned against Ms. Bisig | | | | injunction under Section 1345 is subject to contempt |
| and Home Pharm. In March, 2003, a superseding | | | | proceedings in the event of a violation of such |
| indictment was filed in the criminal prosecution | | | | injunction. United States v. Smith, 502 F.Supp.2d 852 |
| charging Ms. Bisig and/or Home Pharm with four | | | | (D.Minn. 2007) (defendant found guilty of criminal |
| counts of violating 18 U.S.C. § 1347, one count of | | | | contempt for withdrawing money from a bank |
| Unlawful Payment of Kickbacks in violation of 42 | | | | account that had been frozen under 18 U.S.C. § |
| U.S.C. § 1320a-7b(b)(2)(A), and one count of mail | | | | 1345 and placed under a receivership). |
| fraud in violation of 18 U.S.C. § 1341. The | | | | If the defendant prevails in an action filed by the |
| superseding indictment also asserted a criminal | | | | government under the Section 1345, the defendant |
| forfeiture allegation that certain property of Ms. Bisig | | | | may be entitled to attorney's fees and costs under |
| and Home Pharm was subject to forfeiture to the | | | | the Equal Access to Justice Act (EAJA). United |
| United States pursuant to 18 U.S.C. § 982(a)(7). | | | | States v. Cacho-Bonilla, 206 F.Supp.2d 204 (D.P.R. |
| Pursuant to her guilty plea agreement, Ms. Bisig | | | | 2002). EAJA allows a court to award costs, fees and |
| agreed to forfeit various pieces of real and personal | | | | other expenses to a prevailing private party in |
| property that were acquired by her personally during | | | | litigation against the United States unless the court |
| her scheme, as well as the assets of Home Pharm. | | | | finds that the government's position was |
| The United States seized about $265,000 from the | | | | "substantially justified." 28 U.S.C. § 2412(d)(1)(A). In |
| injunctive action and recovered about $916,000 in | | | | order to be eligible for a fee award under the EAJA, |
| property forfeited in the criminal action. The court | | | | the defendant must establish (1) that it is the |
| held that the relator could participate in the proceeds | | | | prevailing party; (2) that the government's position |
| of the recovered assets because the relator's rights | | | | was not substantially justified; and (3) that no special |
| in the forfeiture proceedings were governed by 31 | | | | circumstances make an award unjust; and the fee |
| U.S.C. § 3730(c)(5), which provides that a relator | | | | application must be submitted to the court, |
| maintains the "same rights" in an alternate proceeding | | | | supported by an itemized statement, within 30 days |
| as it would have had in the qui tam proceeding. | | | | of the final judgment. Cacho-Bonilla, supra. |
| A key issue when Section 1345 is invoked is the | | | | Healthcare fraud attorneys, bank and mortgage fraud |
| scope of the assets which may be frozen. Under § | | | | law firms, and securities fraud lawyers should be |
| 1345(a)(2), the property or proceeds of a fraudulent | | | | cognizant of the government's authority under the |
| federal healthcare offense, bank offense or securities | | | | Fraud Injunction Statute. The federal government's |
| offense must be "traceable to such violation" in order | | | | ability to file a civil action to enjoin the commission or |
| to be frozen. United States v. DBB, Inc., 180 F.3d | | | | imminent commission of federal health care fraud |
| 1277, 1280-1281 (11th Cir. 1999); United States v. | | | | offenses, bank fraud offenses, securities fraud |
| Brown, 988 F.2d 658, 664 (6th Cir. 1993); United | | | | offenses, and other offenses under Chapter 63 of |
| States v. Fang, 937 F.Supp. 1186, 1194 (D.Md. 1996) | | | | Title 18 of the United States Code, and to freeze a |
| (any assets to be frozen must be traceable to the | | | | defendant's assets can dramatically change the |
| allegedly illicit activity in some way); United States v. | | | | course of a case. While Section 1345 has been |
| Quadro Corp., 916 F.Supp. 613, 619 (E.D.Tex. 1996) | | | | infrequently used by the federal government in the |
| (court may only freeze assets which the government | | | | past, there is a growing recognition by federal |
| has proven to be related to the alleged scheme). | | | | prosecutors that prosecutions involving healthcare, |
| Even though the government may seek treble | | | | bank-mortgage and securities offenses can be more |
| damages against a defendant pursuant to the civil | | | | effective when an ancillary action under the Section |
| False Claims Act, the amount of treble damages and | | | | 1345 is instigated by the government. |